What is a Group Personal Pension Plan (GPP)?

A Group Personal Pension Plan is a scheme designed for companies who want to encourage their employees to save independently for retirement in a tax efficient and flexible way. It is essentially a collection of personal pensions all administered under the same 'umbrella' with part of the contributions being made by the employer.

The fund is exempt from most taxes and can be invested in a variety of underlying securities - shares, gilts, bonds and property. It therefore has the potential to accumulate at a better rate than other non-tax-exempt investments due to the effect of compound tax-free growth.

Plan holders must begin to take a taxable income from the fund between the ages of 50 (rising to 55 by 2010) and 75. There is also the option to take up to 25% of the fund as a tax-free lump sum and receive a proportionately reduced income.

Group Personal Pensions give members the benefits and flexibility associated with individual plans, combined with the added advantages of group scheme membership. The overall cost and administration is less than that available for the same number of personal pensions administered on an individual basis. For the employer, Group Personal Pension Schemes are less complicated and require less administration than some occupational pension schemes.

Advantages of GPP's

Advantages to the employer

• Welfare: Setting up a Group Personal Pension Plan demonstrates to your employees your concern about their future welfare, by encouraging and assisting them in planning for a secure retirement.
• Loyalty: It encourages increased loyalty from your workforce.
• Competition: It can be used to retain staff or attract them from your competitors, who may not offer the same benefits.
• Awareness: People in general are becoming more aware of pensions and value such benefits in their employers.
• Profits: Contributions paid by the employer can be offset against your profits, reducing your net costs.
• Cost Control: A Group Personal Pension Plan overcomes many of the difficulties associated with traditional defined benefit occupational pension schemes and can be ideally suited to the smaller company.
• Flexibility: You are not tied to an open ended financial commitment, you determine how much you want to contribute.
• Recent Legislation: The government has proposed that under the Stakeholder regime employers without pension schemes, with more than 5 employees must nominate a Stakeholder provider and should assist with the administration of pension contributions for employees. Establishing a Group Personal Pension Plan with a 3% Employer contribution should negate the Employer from this requirement.

Contribution & Fund Limits

From April 2006 you can save as much as you want into any pension scheme. The rules for claiming tax relief on your pension contributions are also more flexible, though tax charges will apply if you go above certain new allowances.

Tax relief on pension contributions

• each year you’ll be able to get tax relief on your pension contributions up to 100 per cent of your earnings subject to an ‘annual allowance’ above which tax will be charged
• if you have little or no earnings you will still get tax relief up to a maximum annual contribution of £3,600

Contributions above the Annual allowance

• the annual allowance for the tax year 2008-09 will be £235,000 and will rise each year until it reaches £255,000 in 2010; thereafter the amount will be reviewed every five years
• if the annual allowance is exceeded you’ll need to declare the extra pension savings and pay the annual allowance charge through Self Assessment
• the annual allowance charge will not apply in the year you take all your benefits

‘Lifetime Allowance’

• from April 2006, you will have a ‘lifetime allowance’ against which the total value of the benefits built up in your pension fund (including investment growth) will be tested
• the value of any pensions savings above the lifetime allowance will be subject to a ‘lifetime allowance charge’
• the lifetime allowance for the tax year 2008-09 will be £1.65m and will rise each year until it reaches £1.8m in 2010; thereafter it will be reviewed every five years
• if you take benefits above your lifetime allowance as a pension, the lifetime allowance charge on the excess amount will be 25 per cent
• if you take benefits above your lifetime allowance as a lump sum, the lifetime allowance charge on the excess amount will be 55 per cent
• the lifetime allowance ‘test’ will take place when you start drawing your benefits or when you reach age

Charging Structure

The traditional structure of policy fees, annual management charges, allocation rates and bid/offer spreads have been swept aside, in favour of the new 'One Charge' contract terms. We believe that the introduction of these new terms will provide simplicity, transparency and value for members.

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